General

A Better Global Governance: What is at Stake?

China Sciences and Humanities Forum

Remarks by Angel Gurría, OECD Secretary-General

Beijing, China, 22nd March 2011

Ladies and Gentlemen,

It is a great privilege to address China’s Sciences and Humanities Forum. I cannot think of a stronger combination than science and humanities to build a brighter future. This is something that our millenary ancestors, both in China and Mexico, knew very well. And we must keep it in mind today, as we try to build a more harmonious global economy.

The list of great thinkers that have addressed this forum is impressive. People like Wang Qishan, Henry Kissinger or Lee Kuan Yew, have been here before me, shedding light, promoting debate for a more human version of economic progress. This is also my intention today. Thank you for this invitation.

The topic I have been asked to address is one of enormous relevance: What is at stake in our efforts to improve global governance? This is a critical question.

So, what is at stake?

The answer is not far away from us. I think the global financial and economic crisis has cast a light on all the precious things that are at stake in a global economy with deficient global governance.

I can think of no other economic crisis that has been so costly for so many people in so many countries.
In the OECD, the crisis left many economies with long term injuries. Output capacity shrank. The average fiscal deficit multiplied by 4 in two years, passing from 2% in 2007 to 8.2% in 2009. Public debt soared to record levels, now representing close to 100% of GDP.

But the greatest cost is the human factor. The crisis left 17 million additional people jobless in these countries. There are now close to 50 million unemployed people in the OECD. This is a tragedy.

The impact of the crisis reached well beyond its epicentre, affecting many developing and emerging economies in different ways. Growth in Sub-Saharan Africa slowed down from 7% in 2007 to 2.5% in 2009. Latin America went from a buoyant 5.8% expansion in 2007 to a contraction in 2009 (-1.8%).

Growth in South East Asia also declined considerably. Here in China, GDP growth slowed as well, from 14.2% in 2007 to 8.7% in 2009, while India’s growth almost halved over the same period, from close to 10% to 5.6%.

Beyond growth and employment, there were other precious elements that were put at risk, like the global development effort, social stability, confidence in globalisation, trust in governments and corporations, and the concept of cooperation itself, the idea that international cooperation can work.

The crisis was a wake-up call to improve global governance

It was a major shaker for international institutions; a blunt reminder that the world has changed, that it is changing now, and that the vertiginous speed of these changes demands constant adaptation.

The global integration of financial markets, enhanced by the information and communication technologies, is demanding a new regulatory framework. The persistence of global economic imbalances is demanding new international monetary understandings. Climate change is pressing for more effective mitigation and adaptation policies, and more efficient renewable energies. The failure in doing Doha is calling for new approaches. And now we have new global emergencies like the social turbulence in Arab countries and Japan’s tragedy.

Today we know that the only way to address these issues is through inclusive multilateral cooperation. The future of the global economy can no longer be decided among a few developed nations. Emerging economies must be included in the equation. Their experiences, their knowledge, and their contribution are essential.

The rise of emerging economies is one of the most amazing transformations the global economy has ever experienced. A recent study by the OECD’s Development Centre estimates that non-OECD countries’ share of global GDP will rise from 40% in 2000 to 57% in 2030. This power-shift can also be perceived in the spheres of international reserves, trade, investment, science and technology.

The scholar Martin Jacques, from the Asia Research Centre at the LSE described this rise of countries like China, India and other emerging economies as “the single most important act of democratisation in the last 200 years”.

In any case, this transformation has had a remarkable impact on the global economic governance architecture. The OECD has been adapting to this new reality enlarging its membership, enhancing its cooperation with emerging and developing countries, and supporting the work of the G20 in a number of key sectors and issues.

Let me say a few words about this new grouping, as we firmly believe that it holds the seeds of a better global governance architecture.

The G20 is charting a new path.

It is the formal recognition of a new geo-economic reality. A multi-polar world economy needs governing institutions that include all the major actors at the table. I was one of the founders of the G20, when I was Minister of Finance of Mexico at the end of the 1990s, following the initiative of my friend Paul Martin, Canada’s Finance Minister.

When Paul Martin was elected Prime Minister, we insisted on the need to raise the level of this group from finance ministers to leaders, and to include other topics in its discussions. We could see that the world had become more complex, and that this complexity demanded new institutions, instruments and public policies to encourage more inclusive economic cooperation. We never succeeded, though. The crisis changed this and precipitated the decision to form a G20 at Leaders level.

The G20 proved to be pretty efficient in dealing with the emergency. It was in great part thanks to the political impulse and policy coordination of the first G20 summits of Washington, London and Pittsburgh that we managed to avoid economic depression.

But now that we have put out the fire, the recovery challenge is more complex.

The G20 must show that it can set new global economic governance into motion for the post-crisis world. This will not be easy. Countries are facing a “new normal” and a multiple speed recovery in which policy requirements in one region may affect growth prospects in others. This new normal is also marked by low growth, high unemployment, high deficits, high debt, the looming danger of unfinished reforms in the financial sector and slow progress in dealing with climate change.

Addressing these challenges requires a consolidation of the G20’s Framework for Strong, Sustainable and Balanced Growth. We must get the new framework right. This will demand common understandings and concepts, reliable comparative statistics, joint analysis and policy experience sharing. This is where the OECD can make a significant contribution.

And we are already doing it, supporting the work of the G20 in areas like taxes, financial sector reform, corruption, employment, social policies, trade and investment, development and green growth. We are producing comparative statistics and studies for the G20 countries, both collectively and individually. We have developed new working methods to support the G20 presidencies and summits.

We believe the G20 can perpetuate itself beyond its crisis fire-fighter role, but it will only be able to do so if it delivers on its commitments. This is one of the key challenges in our efforts to design an effective global governance system.

And we believe that China can play a key role

Here I have two major comments to make and I want to share with you these reflections.

First, improving global governance will depend on the extent to which China wants to assume greater responsibilities in the global financial and economic scenario. I think that these increasing responsibilities are linked to China’s increasing role in the world economy.

But it also depends on China’s growing awareness of its key role in promoting global development and economic stability and on its will to contribute to these with proactive policies. And I believe we have seen several positive signs on both tracks. The recent European tour by Mr. Li Keqiang, China’s Vice Premier, in which he expressed China’s financial support to European countries with sovereign debt problems, in a crucial moment for the stability of the Euro, is a clear example.

China’s increasing participation in the work of the OECD’s committees and bodies can certainly help its government identify different areas and tools to develop a more active role in global economic governance.
My second comment is related to the speed with which China is able to assume greater responsibilities in global economic governance. This will depend, among other factors, on the level of trust that we forge in our relations with this country. And here we have to make a greater effort to understand China and its millenary culture.

If we don’t factor in Chinese history and its influence on current Chinese political philosophy and foreign policy, we will keep failing to communicate. If we keep invoking the experience and model of the West to explain China, we will keep misunderstanding its decisions and key messages.

This is as relevant as it is for China to understand the different Western cultures with which it has strong economic ties. And I am sure the OECD, as an increasingly plural, multidisciplinary and evidence based organisation, is an ideal forum to forge this understanding.

Ladies and Gentlemen

The financial and economic crisis is giving us a unique opportunity to build a more harmonious global economy. But the only way we can seize this opportunity is by improving global governance. This will be determined by our capacity to understand the trends that are changing the world and by our ability to build new communication bridges between developed and developing countries.

The OECD is making a great effort to build these bridges, to learn from developing economies, to broaden our trust by sharing challenges and policy know-how. The recent accession of Chile, Israel, Estonia and Slovenia, the coming accession of Russia and our strengthened cooperation with Brazil, China, India, Indonesia and South Africa, reflect our new essence and aspirations.

I am convinced that our partnership with China will become an important component of a renewed, more effective and inclusive global governance. I also know it will take time, as it took five decades to transform our OECD into what it is today. Confucius used to say: “It does not matter how slowly you go so long as you do not stop”.